What is Non-Banking Financial Company?

A Non-Banking Financial Company (NBFC) is a company registered beneath the Companies Act, 2013 of India, NBFC occupied in the business of
1. Loans and advances,
2. Investment of shares, stock, bonds,
3. Insurance or Chit-fund business
However, NBFC doesn't include any institution whose principal business is that of agriculture, industrial activity, purchase or sale of any goods (other than securities), or providing any services and sale/purchase/construction of the immobile property.

Functions of NBFC

  • The functions and operations of NBFCs are regulated by the Federal Reserve Bank(RBI) of India. Among the framework of the Reserve Bank of India Act, 1934, banks don't seem to be able to reach each corner of financial business desires in India,
  • Non-Banking Financial Company (NBFC) plays a significant role in the financial sector of the Indian economy. That’s why in the previous couple of years in Indian economy went down because of the collapse of financial corporations in India.

What are the different types of NBFC?

Different types of NBFCs are divided into
a) in terms of the sort of liabilities into Deposit and Non-Deposit accepting NBFCs,
b) Non-deposit taking NBFCs by their size into systemically vital and different non-deposit holding corporations (NBFC-NDSI and NBFC-ND) and
c) By the type of activity they conduct.: Non- Banking Financial Company is registered as NBFC to facilitate the flow of long debt into infrastructure projects.NBFC raises resources through the issue of Rupee or dollar-denominated bonds of minimum five-year maturity
Non-Banking Financial Company – Micro-Finance institution could be a non-deposit taking NBFC having not but 85t% of its assets like a qualifying asset.

What are the Non-Banking Financial Company Factors (NBFC-Factors)?

NBFC-Factors are as follows

  • A non-deposit-taking NBFC engaged within the principal business of factoring.
  • The financial assets within the factoring business ought to represent a minimum of 50 % of its total assets.
  •  Its financial gain derived from the factoring business shouldn't be but 50 % of its gross financial gain.

How to apply for a certificate of registration for a Non-Banking financial company (NBFC)?

  • The individual company is needed to use online and submit a physical copy of the application together with the mandatory documents to the Regional Office of the Federal Reserve Bank of India. The application is submitted online by accessing RBIs.

Does the reserve bank regulate all financial companies?

  • No. Housing Finance companies, Merchant Banking companies, Stock Exchanges, corporations engaged in the business of stock-broking working capital Fund corporations,
  • Insurance corporations, and Chit Fund corporations are NBFCs however they need to be exempted from the need for registration beneath Section 45-IA of the tally Act, 1934 subject to bound conditions.
  • Stock exchanges are regulated by the Securities and Exchange Board of India(SEBI), and Insurance corporations are regulated by Insurance Regulatory Association.
  • Chit Fund companies are regulated by the individual State Governments and the Government of India. Corporations that do financial business however are regulated by different regulators and are given specific exemptions by the depository financial institution from its restrictive needs for avoiding duality of regulation.

What are returns to be done by Non-Banking money corporations (NBFC)?

Apart from the compliance beneath the Companies Act, 2013 and different applicable laws, NBFC company has to be compelled to submit the below-given returns: -
1. NBS-1 Quarterly Returns on deposits
2. NBS-2 Quarterly return on Prudential Norms is needed to be submitted by NBFC accepting public deposits.

Can a Non-Banking Financial Company (NBFC) transfer its securities freely?

Subject to restriction to non-public corporations beneath the Companies Act, 2013. And complying with provisions of transfer of securities by personal and public corporations, a Non-Banking financial company (NBFC) is needed to require previous approval from the Federal Reserve Bank of India, wherever any transfer/ acquisition of property is 26% or additional.

Are Banks and Non-Banking financial companies (NBFC) similar?

NBFCs lend and create investments and thus their activities are equivalent to that of banks, but there are a couple of variations as given below:
a) NBFC cannot settle for demand deposits;
b) NBFCs don't type a part of the payment and settlement system and can't issue checks drawn on themselves;
c) Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation isn't on the market to depositors of NBFCs, in contrast to just in case of banks.

Conclusion

Nonbank financial companies (NBFCs), also known as nonbank financial institutions (NBFIs), supply similar services to a bank but do not hold a banking license.